Bombardier has one of the largest line-ups of corporate jets, ranging from the popular Challenger 350, which seats 10 and can cover trips between the U.S. East and West coasts, to the Global 7500, which can fly to Hong Kong from New York with the comfort of a shower and bedroom. The planemaker also refreshed its Global series, with new engines and more range for the 5500 and 6500.
Last year, Bombardiers business jets accounted for $5.4 billion of revenue and had a backlog of pending orders valued at $14.4 billion. The global market in 2018 for business aircraft was about $20 billion, according to the General Aviation Manufacturers Association.
Still, Gulfstream, the industry leader, has announced a new plane that will overtake the Global 7500 as the largest corporate jet with the longest range. Gulfstream, a unit of General Dynamics Corp., flew its G700 for the first time on Feb. 14 and is expected to begin deliveries in 2022.
As a standalone business, Bombardier’s jet unit could be vulnerable to a takeover offer, especially from a large U.S. defense company that doesn’t have a civilian aviation business, such as Lockheed Martin Corp. or Northrop Grumman Corp., Vincent said. The Wall Street Journal reported that Textron Inc., which makes Cessna jets, armored vehicles and tilt-rotor military aircraft, had been in talks to buy the jet business before Bombardier decided to sell its rail-equipment unit instead.
Counterweight
The defense companies provide the financial stability to invest in corporate aircraft, Vincent said. Gulfstream stepped up investment and boosted brand loyalty and service after General Dynamics bought the corporate plane maker in 1999. The defense unit of Dassault Aviation SA, the French plane producer, is booming even as its Falcon jet business has struggled, Vincent said. Brazilian producer Embraer SA will keep its defense and corporate jet units as it seeks regulatory approval to sell its commercial jet business to Boeing Co.
“To me, that’s the way you get around the cyclicality of civil aviation is you have a military business,” Vincent said. “Defense is not going away as an industry.”
For now, Bombardier is enticing for investors because it will trade at an “exaggerated discount” to rivals after the deal to sell the train unit closes, Benoit Poirier, an analyst at Desjardins Securities, said in a note to clients. That discount holds up even after factoring in competitors’ defense businesses. Bombardier also will have a “decent balance sheet,” he said.
“Bottom line, we encourage long-term investors to revisit the story and buy the shares to benefit from the potential value creation arising from management’s efforts to solidify the balance sheet,” Poirier said.
This article was provided by Bloomberg News.